Brymer v. Butler Water Co. ( 1897 )

Opinion by

Mr. Justice; Williams,

The questions presented on this appeal are unlike those that were considered and decided in 172 Pa. 489, when these parties were first before us. The questions then raised related to the power of the court to suspend the collection of water rents by the company so long as the water delivered by it to its customers was so impure as to be clearly unfit for domestic use. We held, affirming thereby the ruling of the court below, that the act of April 29,1874, invested the courts of common pleas with the visitorial powers of the commonwealth as to water and gas companies, so far as related to the quality and quantity of the supply furnished and the prices charged therefor. This supervisory power was brought into exercise upon the petition of one or more consumers making complaint against the company on account of deficiency in the quantity or quality of the water furnished, or of the excessive and unreasonable charges made therefor. Upon a hearing of the testimony the statute empowered the court to dismiss the petition, or to make such order for the relief of the petitioners as the facts disclosed by the evidence might require. This we held included the power to enjoin the company against the collection of water rents when the water furnished was clearly unfit for-domestic use. But we also held that this statute gave the court no power to operate the plant of the water company,, or to interfere with or direct the official discretion of its officers otherwise than as therein prescribed. Where it should go for its source of supply, by what route the supply should be brought to its distributing reservoir, and by what system of distribution it should be taken to its customers, together with all similar questions of construction and operation, were within the exclusive control of the company. It might determine to suspend its operations or to continue them, to increase its capital or to withdraw it altogether, but so long as it continued in the exercise of its franchises it was subject to the supervisory control of the court for the protection of the public supplied by it. The court was charged to inquire first, whether the corporation was discharging the duty it had assumed, and was supplying water to its customers suitable in quality, and sufficient in quantity. It was also to inquire upon complaint made whether the company was extorting from its customers an unreasonable price for the water furnished. While the litigation in which this decision was reached was in progress the water company had been earnestly at work, endeavoring to relieve itself from its embarrassment. It had gone up the Conoquenessing creek several miles to a point above the oil and gas wells which had poured salt water into the stream, constructed a large impounding reservoir, extended their supply pipes up to it, and thus obtained a supply of water reasonably pure, and ample in quantity, to supply the town of Butler. When this had been accomplished the water company presented in the court below its petition setting forth the facts and asking that their truth be inquired into, and if satisfied, that the court would so determine by an appropriate decree, and permit the company to collect water rents from its customers in accordance with a schedule which it had prepared and presented to the court. The learned judge directed an investigation. From the evidence produced on the hearing he found the facts to be as alleged by the water company, and that the company was now entitled to charge and collect water rents, but he declined to approve the schedule of water rents presented. On the other hand he prepared another schedule made up in part from evidence received upon the hearing, and in part from information gathered through other channels, regarding the prices charged in other cities and towns. This schedule he incorporated into the decree, and the company was authorized thereby to charge water rents in accordance with the rates so fixed and not otherwise. This appeal is from so much of the decree as imposes the schedule of charges prepared by the learned judge upon the water company, and forbids the charging and collection of any other rates than those so prescribed. The water company alleges that the court has no power to adopt a tariff of prices for it; but that if this proposition should be denied, still the tariff of prices adopted by the court is erroneous because constructed upon a mistaken basis. It will thus be seen that the real question at issue is whether the boundary line that separates the discretionary control of the owner from the supervising control of the courts, which was pointed out in 172 Pa. 489, terminates when the plant is completed and a suitable water supply procured, or continues on through the business operations of the corporation? The answer to this question must depend on the nature and extent of the powers that result from tbe mere fact of ownership, and on the character of the restrictions, if any, which the commonwealth may have put upon those powers in the interest of the public. The ownership of a corporation is as absolute and comprehensive as that of a private citizen. It includes the right to put a value upon its property, and to determine on what terms it will part with it, or supply its customers with the commodity in which it deals, in the same manner that an individual or a partnership cduld do. But as the corporation derives its existence and its powers and franchises from the state, it is more directly accountable to the state than a natural person now is, under existing laws, for the exercise of good faith in the conduct of its business and for the reasonableness of its charges. The state intervenes for the protection of the citizen. When therefore a customer of a water company finds the company neglecting or refusing to furnish him with an adequate supply of water, or finds the water furnished to be unfit for domestic use, he is authorized by the act of 1874 to make his complaint to the court of common pleas of the proper county by petition. The court is thereupon required to investigate the subject and “to dismiss the complaint, or compel the corporation to correct the evil complained of ” as the evidence may require. As one of the proper methods for the enforcement of a decree against the company, we held in Brymer v. Butler Water Co., 172 Pa. 489, that the company might be restrained from the collection of water rents until the decree was complied with. But the same statute provides that any customer of the company may complain by petition of the charges made for water furnished,' and requires the court to hear and determine as to the charges complained of, and “ to decree that the said bill be dismissed, or that the charges shall be decreased, as to the. said court shall seem just and equitable.”

A provision in the third, section of the act of June 2, 1887, relating to the jurisdiction of the courts over gas and water companies is supplemental to the act of 1874, and defines somewhat more distinctly the duty of such companies to furnish the public with pure gas and water, but it contains no allusion to the subject of. price. The power of the court to interfere between the seller and the buyer of water is conferred only by the provisions already quoted from the act of 1874; and that act authorizes the court to entertain the complaint of the buyer, to investigate the reasonableness of the price charged, and to “ dismiss the complaint,” or to order that the charges complained of, if found to be unreasonable and unjust, “ shall be decreased.” The water company prepares its schedule of prices in the first instance, and makes its own terms with its customersbut if these are oppressive, so that in the exercise of the visitorial power of the state the just protection of the citizen requires that they be reduced, then the court is authorized to say “ this charge is oppressive. You must decrease it. You are entitled to charge a price that will yield a fair compensation to you, but you must no't be extortionate.” This is not an authority to manage the affairs of the company, but to restain illegal and oppressive conduct on its part in its dealings with the public. It may be that the power to order that any particular item of charge shall “ be decreased ” includes the power to fix the extent of the reduction that must be made, or to name the maximum charge for the particular service in controversy, which the court will approve, but the decree is that the item shall “ be decreased ” either generally or to a sum named. The schedule of charges must be revised accordingly by the company defendant, and such revision may be compelled in the same manner that the decree of the same court may be enforced in other cases.

We do not think this supervisory power would justify the court in preparing a tariff of water rents and commanding a corporation to furnish water to the public at the rates so fixed. This would involve a transfer of the management of the property, and the business of a solvent corporation, from its owners to a court of equity, for no other reason than that the court regarded some one or more of the charges made by the company as too high. The act of 1874 contemplates no such radical departure from established rules as this, but provides simply for the protection of the citizen from extortionate charges specifically pointed out and complained of by petition. This leads us to the second question raised, viz: by what rule is the court to determine what is reasonable, and what is oppressive ? Ordinarily that is a reasonable charge or system of charges which yields a fair return upon the investment. Fixed charges and the costs of maintenance and operation must first be provided for, then the interests of the owners of the property are to be considered. They are entitled to a rate of return, if their property will earn it, not less than the legal rate of interest; and a system of charges that yields no more income than is fairly required to maintain the plant, pay fixed charges and operating expenses, provide a suitable sinking fund for the payment of debts, and pay a fair profit to the owners of the property, cannot be said to be unreasonable. In determining the amount of the investment by the stockholders it can make no difference that money earned by the corporation, and in a position to be distributed by a dividend among its stockholders, was used to pay for improvements and stock issued in lieu of cash to the stockholders. It is not necessary that the money should first be paid to the stockholder and then returned by him in payment for new stock issued to him. The net earnings, in equity, belonged to him, and stock issued to him in lieu of the money so used that belonged to him was issued for value, and represents an actual investment by the holder. If the company makes an increase of stock that is fictitious, and represents no value added to the property of the corporation, such stock is rather in the nature of additional income than of additional investment. This whole subject was brought to the attention of the learned judge by a request that he should find as matter of law that the reasonableness of the charges must be determined with reference to the expenditure in obtaining the supply, and providing for a fund to maintain the plant in good order, and pay a fair profit upon the money invested by the owners, and that a rate which did no more than this was neither excessive nor unjust. This the learned judge refused to find, saying in reply to the request, “ we have no authority for such a ruling, and it would be unjust to the consumer who would have to pay full cost of the water, provide a sinking fund, secure a reasonable profit upon the investment, and have no voice in the management of the business of the company. The act of assembly in this regard can bear no such construction.”

This ruling cannot be sustained. The cost of the water to the company includes a fair return to the persons who furnished the capital for the construction of the plant, in addition to an allowance annually of a sum sufficient to keep the plant in good repair and to pay any fixed charges and operating expenses. A rate of water rents that enables the company to realize no more than this is reasonable and just. Some towns are so situated as to make the procurement of an ample supply of water comparatively inexpensive. Some are so situated as to make the work both difficult and expensive. What would be an extortionate charge in the first case might be the very least at which the water could be afforded in the other. The law was correctly stated in the defendant’s request, and the court was in error in refusing it. But we think the court had no power to adopt for, and enjoin upon, the company a comprehensive schedule like that incorporated into the decree in this case. The decree found that the water supply furnished by the defendant company was abundant and “reasonably pure and fit for public use,” but, without any adjudication that any particular charge or charges complained of were excessive and must be decreased, he made a decree that “ the water rates of the defendant company from March 1,1896, to be charged and collected from the plaintiffs for water by the defendant company to the plaintiffs shall be as follows: ” Then follows a table filling two and a half pages of the appellant’s paper-book, and pro-providing specifically for domestic rates, for livery, hotel and trading stables, for hotels and boarding houses, for fountains, steam engines, schools, motors, public buildings, special rates, and meter rates, subject to provision that “ when the water ” which the same decree had just pronounced to be reasonably, pure and suitable for domestic use “is properly filtered the charges may be increased twenty per cent.” The school district of Butler was not a party complainant in this case, nor was the county of Butler, but both were taken under the protection of the court and specifically provided for by the decree. Fountains are luxuries. The question whether the police power of the state can be successfully invoked to cheapen the price of water furnished for purposes of display or the mere gratification of one’s taste, is at least open to discussion, but, without discussion, it is disposed of by this decree, and the price reduced. In short, upon a general complaint that the rates charged by the defendant were too high, without specification of the particular charges that were alleged to be excessive, the court has undertaken to revise the entire schedule of prices, and instead of directing the company to decrease the objectionable charges, has formulated an entirely new schedule of prices, covering all of the business of the company. Tins new schedule it has framed upon the mistaken basis adopted and stated in the third conclusion of law already considered. This action is not authorized by the act of 1874. It is not the hearing of a complaint against the charges made by the company and a decision of the controversy so arising, but it is the assumption of a power to frame a schedule of prices covering the entire business of the company, with all its customers, many of whom are not even complaining of the rates paid by them. The framing of such a general schedule is ordinarily the right of the company. The correction of this schedule when framed, whenever it may work injustice and hardship is tiie prerogative of the court, and one which should be fearlessly exercised.

For the reasons now given this decree cannot be affirmed, but under the peculiar circumstances surrounding this case we cannot enter a simple decree of reversal.

The first paragraph of the decree appealed from is affirmed. The second paragraph is affirmed so far as it operates to rescind the decree of Sept. 14,1895. The third paragraph is reversed. The reversal to take effect on the first day of March, 1897. In tiie meantime the rates established by it shall continue. Before the first of March, 1897, the company may prepare a just and reasonable schedule of charges to go into operation on the said first day of March. If any of such charges shall be complained of thereafter the customer complaining may proceed under the act of 1874 to a hearing, and the court may dismiss the petition or order the charges to be decreased to such extent as may seem to the said court equitable and just. In view of the history of this ease the fourth paragraph of the decree appealed from is affirmed.